Question 1

Conceptual frameworks provide prescription so they are considered to be:
A) Normative theories of accounting
B) Positive theories of accounting
C) Decision usefulness theory of accounting
D) None of the given options are correct.

Accepted Answer

Conceptual frameworks provide guidance on how accounting should be done, thus they provide a normative theory of accounting. Positive theories, on the other hand, describe and explain the way accounting is actually done in practice. Decision usefulness theory is a specific normative theory that focuses on how financial information can be optimized to aid decision-making. None of the given options include the correct match for conceptual frameworks.

Question 2

Which of the following is not a perceived advantage in developing a conceptual framework project?
A) Standard-setters will be less accountable for their decisions.
B) Setting accounting standards will be more economical, despite the resources needed to develop the conceptual framework and standards.
C) It will result in a reduced number of accounting standards where issues are covered by the conceptual framework.
D) It will provide a defence and enhance the legitimacy of the accounting profession.

Accepted Answer

Standard-setters being less accountable for their decisions is not a perceived advantage of developing a conceptual framework project. In fact, the opposite is true as a well-developed conceptual framework can increase transparency and accountability in the standard-setting process. The other options, B to D, are all perceived advantages of developing a conceptual framework project.

Question 3

According to the IASB,a conceptual framework:
A) Is a coherent system of concepts that flow from an objective
B) Provides guidance on identifying the boundaries of financial reporting in selecting the transactions, other events and circumstances to be represented
C) Outlines how transactions should be recognised and measured (or disclosed)
D) All of the given options are correct.

Accepted Answer

A conceptual framework, according to the IASB, is a coherent system of concepts that flow from an objective, which provides guidance on identifying the boundaries of financial reporting in selecting the transactions, other events and circumstances to be represented, as well as outlines how transactions should be recognised and measured (or disclosed). Therefore, all options given (A, B, and C) are correct.

Question 4

Which of the following is a characteristic of relevance?
A) It influences economic decisions.
B) It represents faithfully what it purports to represent.
C) It provides predictive value and feedback to confirm or correct earlier expectations.
D) None of the given options is correct.

Accepted Answer

C  Relevance in financial information means it can influence economic decisions (A) and provides predictive value and feedback (C).

Question 5

Which of the following is correct about the concept of 'control' in the recognition of assets?
A) Control relates to the capacity of a reporting entity to benefit from an asset and to deny or regulate the access of others to the benefit.
B) The capacity to control would not normally stem from legal rights.
C) Control is not required before an asset can be shown within the body of an entity's balance sheet (statement of financial position).
D) Controlled assets are always owned.

Accepted Answer

Control in the recognition of assets refers to the ability of a reporting entity to benefit from an asset and to prevent or regulate the access of others to the benefit. This control can result from legal rights or other means, such as controlling the physical use of an asset. Therefore, option A is the correct answer. Option B is incorrect because legal rights can often be the source of control over an asset. Option C is incorrect because control is a necessary condition for an asset to be recognized in the balance sheet. Option D is incorrect because an asset can be controlled without being owned, such as a leased asset.

Question 6

Over time,a number of objectives have been attributed to information provided within financial statements.Which of the following is not an objective of financial statements?
A) To enable outsiders to assess the stewardship of management.
B) To provide information to users that is useful for making and evaluating decisions about the allocation of scarce resources.
C) To enable reporting entities to demonstrate accountability between the entity and those parties to which the entity is deemed to be accountable.
D) To help managers to maximise their own wealth and the wealth of the organisation.

Accepted Answer

The objective of financial statements is to provide information that is useful for decision making by external users, such as investors, creditors, and other interested parties. The objective is not to help managers maximise their own wealth and the wealth of the organization, but rather to provide information that enables users to assess the financial position, performance, and cash flows of the reporting entity.

Question 7

In Australia,according to SAC 2 'Objective of General-Purpose Financial Reporting',the primary user groups(s)of general purpose financial reports are:
A) Resource providers
B) Recipients of goods and services
C) Parties performing a review or oversight function
D) All of the given options are correct.

Accepted Answer

All of the given options are correct. This means that resource providers, such as shareholders and lenders, recipients of goods and services, such as customers, and parties performing a review or oversight function, such as regulators and auditors, are all primary user groups of general purpose financial reports in Australia according to SAC 2.

Question 8

Factors that may indicate a reporting entity include:
A) Separation of management from those with an economic interest in the entity
B) The economic or political importance/influence of the entity to/on other parties
C) The financial characteristics of the entity
D) All of the given options are correct.

Accepted Answer

All of the given options may indicate a reporting entity. Separation of management from those with an economic interest in the entity may suggest the existence of a distinct legal entity. The economic or political importance/influence of the entity to/on other parties may highlight the significance of the entity's performance for decision-making purposes. The financial characteristics of the entity, such as its size, complexity, and level of risk, may also affect its reporting requirements. Therefore, all of these factors should be considered when determining whether an entity should prepare financial statements in accordance with generally accepted accounting principles.

Question 9

Which of the following is an enhancing qualitative characteristics identified by the IASB Conceptual Framework?
A) Comparability and faithful representation
B) Relevance and timeliness
C) Timeliness and verifiability
D) Understandability and reliability

Accepted Answer

Timeliness and verifiability are enhancing qualitative characteristics according to the IASB Conceptual Framework, which improve the usefulness of information that is relevant and faithfully represented.

Question 10

Which of the following is true about conceptual frameworks?
A) They lead to decreased international compatibility of accounting standards.
B) Communication between standard-setters and their constituents would be diminished.
C) Smaller organisations may feel overburdened by reporting requirements.
D) Standard-setters would be less accountable for their decisions.

Accepted Answer

Conceptual frameworks can increase reporting requirements, which can potentially burden smaller organizations. However, they do not necessarily impact the international compatibility of accounting standards or communication between standard-setters and constituents, nor do they make standard-setters less accountable for their decisions.

Question 11

What does the political legitimacy argument,as outlined by Hines (1991),suggest?
A) The accounting profession consists of experts in technical knowledge of accounting and should therefore be given authority to regulate accounting.
B) The accounting profession used the development of the conceptual framework as a strategy to promote their self-regulation interests.
C) The conceptual framework provides the authority to resolve technical issues with authority and legitimacy.
D) As users are politically involved in developing the conceptual framework, the outcome has political legitimacy.

Accepted Answer

The political legitimacy argument, as outlined by Hines (1991), suggests that the accounting profession used the development of the conceptual framework as a strategic move to promote their interests in self-regulation, rather than purely for technical or conceptual improvements.

Question 12

Which of the following measurement methods is not explicitly recognised in the IASB Conceptual Framework,although it is recognised in the FASB Framework?
A) Current market value
B) Current replacement cost
C) Net realisable value
D) Present value

Accepted Answer

The answer of Which of the following measurement methods is...

Quiz 6: Normative Theories of Accounting: The Case of Conceptual Framework Projects

Conceptual frameworks provide prescription so they are considered to be:

Which of the following is not a perceived advantage in developing a conceptual framework project?

According to the IASB,a conceptual framework:

Which of the following is a characteristic of relevance?

Which of the following is correct about the concept of 'control' in the recognition of assets?

Over time,a number of objectives have been attributed to information provided within financial statements.Which of the following is not an objective of financial statements?

In Australia,according to SAC 2 'Objective of General-Purpose Financial Reporting',the primary user groups(s) of general purpose financial reports are:

Factors that may indicate a reporting entity include:

Which of the following is an enhancing qualitative characteristics identified by the IASB Conceptual Framework?

Which of the following is true about conceptual frameworks?

What does the political legitimacy argument,as outlined by Hines (1991) ,suggest?

Which of the following measurement methods is not explicitly recognised in the IASB Conceptual Framework,although it is recognised in the FASB Framework?